As Brussels loosens the purse strings, defence tech start-ups across emerging Europe eye a windfall.
With Russia’s artillery thundering less than 1,000 kilometres from Warsaw, the European Commission has made its most decisive move yet to bolster the continent’s defence capabilities.
A new regulation proposed last week will fundamentally reshape how EU funds flow to defence firms—particularly benefiting the hungry young companies sprouting across Central and Eastern Europe.
The changes amount to nothing less than a quiet revolution in EU funding philosophy. Historically, Brussels maintained a firm firewall between civilian spending and military matters. Now, that wall is being strategically dismantled. The new regulation will allow EU funds to be redirected to defence projects with unprecedented flexibility, opening floodgates of capital for emerging European defence contractors previously starved of institutional investment.
New money, new players
The regulation represents a profound shift in EU thinking. For decades, defence funding has been fragmented along national lines, with American and Western European firms dominating the market.
Firms from Poland to Romania have struggled to compete, lacking both the capital and institutional connections of their Western rivals.
The regulation’s most impactful measure expands the Strategic Technologies for Europe Platform (STEP) to encompass defense technologies explicitly. This change will enable promising projects to receive a coveted ‘STEP Seal’, unlocking access to multiple funding streams simultaneously—a game-changer for capital-intensive defence start-ups in countries such as Poland, Romania, and the Baltic states.
Defence tech firms across emerging Europe have long operated with limited resources, often bootstrapping their way through initial development cycles. With these new funding mechanisms, companies developing everything from electronic warfare systems to advanced drone technologies will now have access to substantially deeper pockets.
Ukraine’s brutal lesson
The shadow of Ukraine looms large over this policy shift. The war has been a brutal proving ground for military technologies and a wake-up call for European leaders. Ukrainian forces’ innovative deployment of commercial drones retrofitted for combat has demonstrated that nimble start-ups can sometimes outperform defence giants when it comes to battlefield adaptation.
This lesson has not been lost on policymakers. The new regulation deliberately focuses on areas where emerging European defence firms have shown promise: drone technology, cybersecurity, electronic warfare, and autonomous systems. Companies working in these spaces stand to benefit most from the funding changes.
The regulation specifically highlights artificial intelligence as a priority area—a sphere where Eastern European tech talent has already established significant expertise. Cybersecurity firms from countries like Estonia, which faced pioneering Russian cyber attacks in 2007, have built world-class capabilities born of necessity.
With American commitment to European defense increasingly uncertain, the regulation acknowledges a stark reality: Europe must develop its own defense industrial capacity, and quickly. This imperative is driving investment toward the continent’s eastern flank, where the Russian threat is most acutely felt.
“By incentivising defence-related investments and supporting innovation in defence technologies, we are ensuring that Europe’s defence industry remains competitive, agile, and prepared to respond to evolving security challenges,” says Andrius Kubilius, the Lithuanian European Commissioner for Defence and Space.
Dual-use bonanza
Perhaps most revolutionary is the expansion of Horizon Europe and the Digital Europe Programme to explicitly include dual-use technologies—innovations with both civilian and military applications. This change will allow companies to develop technologies under civilian funding streams that can later be adapted for defence purposes.
Many emerging European defence firms began in adjacent fields—agricultural drones, civilian cybersecurity, or commercial communications—before pivoting toward defence applications. The new dual-use provisions legitimise this path, removing administrative barriers that previously forced companies to maintain artificial separations between their civilian and military work.
The Digital Europe Programme’s new mandate to support AI gigafactories could particularly benefit the region. These facilities will develop machine learning systems applicable to both commercial sectors and defence needs like threat detection, battlefield awareness, and autonomous systems.
Eastern Europe’s combination of strong technical education systems and lower operating costs creates ideal conditions for such facilities. Countries from Poland to Bulgaria have produced world-class technical talent but have often seen their best graduates migrate westward. These funding changes could help reverse that brain drain.
Military mobility and infrastructure
For emerging Europe, situated on NATO’s eastern flank, the enhanced support for military mobility through the Connecting Europe Facility (CEF) could prove transformative. The region’s Soviet-era transport infrastructure has long been a strategic vulnerability—one that the new regulation specifically addresses.
The expanded CEF digital programme will support dual-use digital capacities like cloud computing, AI systems, and 5G communications networks—all critical for modern defense operations. As the EU’s frontier states, countries like Poland, Romania, and the Baltics stand to benefit disproportionately from these investments.
Infrastructure improvements will create ripple effects throughout the regional defense ecosystem. Better transportation networks enable faster deployment of forces, while improved digital infrastructure supports the data-intensive applications that modern defense technologies require.
Who benefits most?
The true winners under this new regime will be companies that combine technical innovation with strategic awareness. Poland’s WB Group exemplifies this approach. Starting as a small radio communications firm, it has grown into a significant player in the defense technology space, focusing on specialised capabilities that larger Western companies overlooked.
Similarly, Czech aircraft manufacturer Aero Vodochody has reinvented itself by focusing on specialised training and light attack aircraft rather than competing with aviation giants. Its L-39NG trainer has found a market niche that larger companies had neglected.
Romania’s defence sector has shown remarkable growth in recent years, leveraging the country’s software engineering talent to develop advanced command and control systems. Bulgarian firms have carved out specialties in secure communications, while Baltic companies excel in counter-drone and cyber defence solutions.
The path ahead
While the regulation creates unprecedented opportunities, challenges remain. Defence procurement remains notoriously complex, with national security considerations often trumping efficiency and innovation. Many emerging European defence firms lack the institutional knowledge to make the most of the opportunities.
Industry associations across the region have begun establishing knowledge-sharing networks and mentorship programs. The Baltic Defence Innovation Association represents one such effort to help start-up founders understand the byzantine world of defence contracting.
The Commission’s promise of an Omnibus Defence Simplification Package in June 2025 offers hope that these bureaucratic hurdles may be lowered. Until then, the most successful firms will be those that can speak both the language of innovation and the dialect of defense procurement.
As Russian aggression continues and American commitment wavers, Europe has finally recognised that security requires investment. For the scrappy defence innovators of emerging Europe, long overshadowed by Western giants, that recognition couldn’t come soon enough. The continent’s security may soon depend on them.
Photo: Dreamstime.
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